ADES CEO says rig additions boost profit growth, 75% of revenue from Aramco

ADES Holding Co.'s Q1 2024 profit growth was driven by an increase in revenues, coupled with the company's proactive step of hedging for about 60% of its loans, which helped slash costs to about 4%, according to CEO Mohamed Farouk.

Speaking with Al Arabiya TV, the top executive said that the growth in ADES Q1 revenues was driven by rig additions since the first months of last year, with six drilling rigs added to the company's operations in Kuwait and three others operated in India.

The company successfully operated 19 rigs for Aramco within about 15 months, which is an unprecedented achievement globally, as Aramco applies the highest standards in the world.

This confirms that ADES serves as a model for the localization of this strategic and vital industry in the Kingdom, Farouk added.

Regarding earnings before interest, taxes, depreciation, and amortization (EBITDA), the CEO explained that the majority of the company's revenues came from offshore rigs, which typically have high margins due to their scarcity and high prices.

He went on to say that offshore rigs account for about 80% of the company's revenue, noting that there are only 400 floating drilling rigs in the world, 49 of which are owned by ADES, making it the dominant player in this field.

There is no company in the world manufacturing new offshore rigs currently, which means that usage will increase, according to the CEO. He also stated that 30% of the available rigs are more than 35 years old and will be suspended soon, resulting in a decrease in supply and an increase in global prices.

Elsewhere, the CEO said that the company's debts fell from SAR 10 billion at the end of last year to SAR 9.7 billion, as about SAR 3.5 billion were due to banks.

ADES has contracts worth about SAR 26.8 billion, indicating that all of its debt is covered by contracts, which allows the company to work with top banks in the Kingdom.

Given its strong position, the company has no intention to restructure the loans. Rather, it plans to expand its operations through debt in the near future, Farouk said.

Farouk added that Saudi Aramco contributes 75% of the company's revenues, indicating that ADES operates in nine markets.

Further, the firm sees huge opportunities in India and Southeast Asia, specifically in Thailand, Indonesia, and Malaysia, as these markets face rig shortages and rising oil consumption, Farouk said, highlighting the possibility of winning a number of contracts in the coming period.

As for dividends, the top executive said that ADES announced during its share listing that it would begin dividend distribution at 60% for the first half of 2024, starting from the second half of 2024.

According to data available to Argaam, ADES reported a rise in its net profit after minority interest to SAR 197.1 million in Q1 2024, compared to SAR 87.6 million in the prior-year period.